AI Is Making Hardware Sexy Again

Up until the late 80s and early 90s hardware was King: IBM,Intel, Texas Instruments were market leaders. Devices from Japanese corporations like Sony, Toshiba, and Panasonic were everywhere. But the use cases of most of their devices didn’t evolve significantly as the tastes of consumers around the world shifted to software and mobile devices. The shift to software, when it came, favored companies like Microsoft, Oracle, and SAP. The latter then missed the shift to mobile, opening the door for companies like Apple, Google, and Samsung. But none of the above-mentioned companies is planning on missing the coming, and increasingly obvious shift to “edge” computing, where virtual assistants and other AI applications permeate all physical devices that can hold them. This all means that hardware is making a comeback, riding on the tailcoats of AI. Software may still be eating the world, but as Nvidia’s chief Jensen Huang said in a 2017 interview, AI will eat software.

And AI is hungry.

Artificial Intelligence has been undergoing an awakening, no longer an esoteric or emerging trend, but a growing reality. Many of the actions being carried out by humans today --like driving, packaging, accounting, and maybe even cooking --will be automated sooner or later. Actions we carry out by typing into smartphones or TV remote controls will give way to speaking to virtual assistants like Siri, Alexa, and Google, who will live in devices everywhere, a concept called edge or “ambient computing.”

AI needs powerful processors (THOMAS SAMSON/AFP/Getty Images)

AI is not a new concept, nor are the math fundamentals underpinning it. But for AI to “eat software” and become truly useful it needs hardware: processors and chips fast and strong enough to gather, crunch, and act on the vast amounts of data our world is creating. Those hardware components are finally here, catching up to the software that’s been growing in things like big datasets and neural networks.

The growing need for dedicated hardware to fuel the services and products companies want to offer users has created a resurgence of hardware worldwide. There is now an understanding that the gaps between the desire to offer advanced services and the hardware limitations needed to offer those services must be bridged.

When referring to specialized hardware for AI, this usually means processors with incredibly strong computational abilities and sometimes even special architecture that makes it possible to run AI algorithms within a reasonable period of time. Nvidia, considered a leader in chips for AI, has grown exponentially over the past year. The growing interest in AI has sparked competition between Nvidia and other hardware companies like Intel, and even start-ups such as Graphcore, as well as tech giants that develop hardware capabilities for themselves, like Google, IBM, Apple, Baidu and Facebook.

The reality is that technology companies –not in themselves pureplay hardware natives -- are developing the hardware they need by themselves. This is especially apparent among the giants: Amazon, Google, Microsoft and Facebook, who several years ago concluded that existing products in communications, data processing and storage did not meet their requirements. A great example of this was AWS’s 2015 acquisition of Israeli chip company Annapurna Labs, which developed a platform-on-chip technology for data communications. A large part of the advanced services offered by AWS today are based on this technology.

Even venture capitalists, who usually shy away from the hard business of hardware, are increasingly investing in hardware startups. While this investment trend hasn’t yet caught on in Israel, the hardware startup scene here is poised for a boom.

According to data from Start-Up Nation Finder, the innovation discovery platform for Israeli tech, there are some 86 currently active hardware innovation startups in Israel. About half of them have between 11-50 employees, meaning they’re not entirely early stage, but are growing businesses with products on the market.

In this context, it should be noted that the country’s defense industry --which often pushes the envelope on electronics, software, and the hardware that comes with it--is a big driver of hardware innovation and entrepreneurship from army vets. In addition, the significant activity in Israel of multinationals such as Intel, Apple, Cisco and Qualcomm have made hardware one of Israel's core technological capabilities.

True, compared to software, hardware companies require higher investment amounts and more development time, but their potential is enormous, especially when they provide the platform for AI to flourish and come alive.

While it is clear to everyone that AI is all over, it’s even more clear for tech giants such as Google, Microsoft, Apple, Amazon, etc. that in order to continue leading in their domain, they must build on their own the AI enabling hardware.

Yair Snir is Managing Director at Dell Technologies Capital, where he leads venture investment activity in Europe and Israel.